Efficient working capital management as the tool for driving profitability and liquidity: a correlation analysis of Nigerian companies

Adekola, Ambrose; Samy, Martin; Knight, Dave

doi:10.1504/ijbg.2017.081957

Cited by 16 publications

(10 citation statements)

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“…Working capital management affects firms' liquidity as it relates to current assets and current liabilities (Adekola, Samy, & Knight, 2017) and in the end, it affects firm's profitability (Deloof, 2003;Hadri & Dhiyaullatief, 2018;Nastiti, Atahau, & Supramono, 2019;Tran, Abbott, & Yap, 2017). A high level of investment in current assets and greater reliance on short-term financing is mostly found in the manufacturing sector as it is determined by the continuity of manufacturing firms (Raheman, Qayyum, & Afza, 2011).…”

Section: Introductionmentioning

confidence: 99%

Does Working Capital Management Affect Profitability? Empirical Evidence from Indonesia Listed Firms

Basyith

Djazuli

Fauzi

2021

Asian Economic and Financial Review

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This study attempts to examine the impact of working capital management (WCM) on profitability and examine the working capital conditions of several companies listed on the Indonesia Stock Exchange (IDX). The sample used is 135 listed firms and were selected from each sector, such as plantation, pharmaceutical, telecommunication, investment, retail, and the cement and metal industries from 2000 to 2019. The variables employed in this study are working capital investment strategy (WCIS), working capital financing strategy (WCFS), cash conversion cycle (CCC), days sales outstanding (DSO), days inventory outstanding (DIO), days payable outstanding (DPO), debt ratio (DR), size, age, and current ratio (CR). The ordinary least squares (OLS) was employed to analyze the data. The results revealed that the working capital investment approach has a positive and significant effect on return on assets (ROA) in all regression models used; the working capital financing approach has a negative effect on ROA but not significant; the working capital investment approach to the gross profit margin in all models shows a negative and significant coefficient; and the working capital financing approach shows a negative and significant sign for all capital used. Based on the type of industry, companies that use a lot of aggressive working capital investment approaches are the agriculture industry and the infrastructure, utility and transportation industries. Meanwhile, companies that mostly take a conservative working capital investment approach are the consumer goods industry, the basic chemical industry and the miscellaneous industry. Contribution/Originality: This study is one of very few studies that have investigated working capital management on profitability and also examines the working capital conditions of several companies on the Indonesia Stock Exchange (IDX) using considerable and diverse firms as the sample. tenure of current liabilities and choose the right kind of debt that matches the tenure of a firm's assets. Working capital is required for a firm to carry out its daily operations. Working capital is the overall value of a firm's current assets, which are also referred to as gross working capital, and consist of cash, receivables, inventory Asian Economic and Financial Review

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Section: Introductionmentioning

confidence: 99%

Does Working Capital Management Affect Profitability? Empirical Evidence from Indonesia Listed Firms

Basyith

Djazuli

Fauzi

2021

Asian Economic and Financial Review

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“…Thus, it is necessary that firms balance these two objectives in their activities (Gitman 2011). Working capital management is closely related to the decisions on firms' asset composition and current liabilities that imply on firms' profitability (Adekola et al 2017, Deloof 2003, Mannori and Mohammad 2012. Further, Misbah et al (2015) indicates that working capital management is the essential element of firms' daily operating activities.…”

Section: Introductionmentioning

confidence: 99%

Working capital management and its influence on profitability and sustainable growth

Nastiti¹,

Atahau²,

Supramono³

2019

BTP

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This study aims to test the effect of working capital management on firms’ profitability and the effect of this relationship on sustainable growth. Our sample firms are 136 manufacturing firms listed in the Indonesian Stock Exchange from 2010 to 2017. We use data panel regression with fixed effect estimation model to analyze our data. The results demonstrate that working capital significantly affects firms’ profitability. However, working capital management does not exhibit a significant direct influence on sustainable growth but a significant indirect influence through firms’ profitability. Thus, this study suggests that firms need to manage their working capital to increase their profits and eventually to achieve sustainable growth. This study contributes by including sustainable growth in the analysis of the relationship between working capital and firm performance. In addition, this study will likely contribute to managers in efforts to increase sustainable growth for their enterprises through working capital management.

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“…Earlier research has indicated that the management of WC contributes well to gross profit (Lazaridis and Tryfonidis, 2006;Gill et al, 2010;Adekola et al, 2017;Boisjoly et al, 2020). Earlier literature found that the inverse relationship between these dimensions was commonly observed by WCM and the gross benefit association (Karim et al, 2017;Samiloglu and Akgün, 2016;Chowdhury et al, 2018).…”

Section: Literature Reviewmentioning

confidence: 97%

Macroeconomic factors, working capital management, and firm performance—A static and dynamic panel analysis

Hussain

Nguyen

et al. 2021

Humanit Soc Sci Commun

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The aim of the study is to explore the interaction effect of macroeconomics indicators, and working capital flows on financial performance in a developing economy. By using the static and dynamic approach of panel analysis, it has been shown that there is a relationship between the components of working capital and the gross profit and cash conversion duration. Second, while interest rates used as an interaction variable with the average payable days have adverse effects, firm performance would decrease if interest rates increase. The average payable duration extends; instead of primarily regressing, the average payable period positively correlates with firm performance. The conversion cycle of cash has a negative relationship, but it reverses its actions after using interest rate interaction. There is a negative relationship with gross profit in the simple regression exchange rate and cash conversion cycle while using the second interaction variable with the cash conversion cycle, has positive effects. In addition, the exchange rate gets higher to increase the cash conversion length, financial performance will be increased. In addition, the exchange rate gets higher to increase the cash conversion length, financial performance will be increased. This study receives new results, the exchange rate increases, companies that can pay early to payable will get higher firm performance while exchange rate and the interest rate have a significant role in changing the firm performance.

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Efficient working capital management as the tool for driving profitability and liquidity: a correlation analysis of Nigerian companies

Cited by 16 publications

References 0 publications

Does Working Capital Management Affect Profitability? Empirical Evidence from Indonesia Listed Firms

Does Working Capital Management Affect Profitability? Empirical Evidence from Indonesia Listed Firms

Working capital management and its influence on profitability and sustainable growth

Macroeconomic factors, working capital management, and firm performance—A static and dynamic panel analysis

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